Tax-free football

You thought Seahawks fans were paying for the new stadium? Not anymore.

It was an odd scene in the King County Council chambers last week. A power lineup of political operators had gathered, including Paul Allen's personal point man, the veteran Olympia lobbyist Forrest "Bud" Coffey. Clad in an aquamarine-striped short-sleeved Oxford shirt that made it clear he has no need to impress, the jovial Coffey worked the room, accompanied by a train of emissaries from Allen's stadium-building company, First & Goal. Customary back pats and cupped-to-the-ear confidences were exchanged. State Treasurer Michael J. Murphy, a silver-haired, 27-year veteran of state and county politics, was also on hand. He had driven up from Olympia to testify personally, he said, so as to underline the importance of the issue under discussion that morning.

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Yet members of the county council did not look like they had anything important, let alone controversial, on their agenda. Half the council members were busy entertaining a delegation from Mazatlᮠ(yet another of our "sister cities," apparently). And when the agenda item was introduced—a proposal to slash the tax on tickets and parking at Allen's new football stadium—the committee members had not a single question.

Treasurer Murphy explained to them that by lowering these county taxes—currently pegged at 10 percent—the new stadium could actually be built more cheaply, due to some arcane IRS regulations governing the use of tax-exempt bonds. Republican council member Chris Vance, never one to look a tax cut in the mouth, wondered why this issue had even required an analytical report from council staffers. It was, everyone agreed, a "no-brainer."

Next day, the Seattle Times headline announced to a grateful city: "You heard right: Seahawks actually want less tax money."

Not exactly. This new financing scheme—which was jointly devised by state government officials and Paul Allen executives—will likely result in an overall decrease in interest costs on the stadium. But it will also allow for a corresponding increase in the amount of money pocketed by the Hawks and Paul Allen, since they will be able to boost the price of game tickets and parking to make up for the disappearance of the tax.

The new plan also represents a complete abandonment of the idea—much repeated by stadium boosters when the project was put to a public vote two years ago—that people who actually use the stadium will be the ones who pay most of the tab. Back then, Governor Gary Locke, who campaigned heavily for the stadium, declared it one of his "principles" that the project "be funded primarily by sports fans and stadium users." Now, in fact, the stadium will be mostly paid for with sales taxes and other public monies that have no connection to football. "The users are getting off scot-free," notes Chris Van Dyk, a longtime stadium opponent.

Under the plan approved by voters back in June of '97, the public is responsible for $300 million of the $430-million football stadium and exhibition center, which will rise from the rubble of the Kingdome. State officials want to pay the public's share by using tax-exempt bonds, which carry a lower interest rate than taxable bonds.

The IRS recognizes—even if many local politicians do not—that building a stadium for a for-profit professional sports franchise isn't exactly serving a "public purpose." So the agency puts certain restrictions on the use of tax-exempt bonds in these cases. Most specifically, the IRS requires that no more than 10 percent of the money used to pay off these bonds be "private," such as a contribution from the team owners. Otherwise the feds would be subsidizing a privately owned business project rather than a publicly funded facility.

In the IRS's view, taxes that are levied directly on stadium-goers constitute just such a "private" contribution. According to local bond attorney Jay Reich of Preston Gates & Ellis, the IRS figures that, were it not for a tax of, say, 5 percent on tickets and parking, market forces would allow the team to charge 5 percent more for those items. The tax represents money that the team is giving up.

But the Hawks will not be giving up much: Allen and state officials are asking the county council to slash the admissions tax at the stadium from 10 percent to 3 percent and the parking tax from 10 percent to 1 percent.

State Treasurer Murphy says this cut is necessary in order to keep the "private" money under the lid for tax-exempt bonds. He estimates that, by using tax-exempt rather than taxable bonds, the state will save about $60 to $70 million in total interest costs over the bonds' 20-year lifespan.

However, that will be no benefit to county taxpayers as a whole: the same amount of sales tax, hotel-motel tax, and other "public" money that is earmarked for the stadium will still be required under the new plan. Rather, the savings will flow to football fans and Boat Show goers—except to the degree that tickets and parking prices rise more than they would have otherwise, in which case the savings will flow to Allen.

Of course, nobody except maybe a few bond traders wants to see us pay an extra $60 to $70 million in interest just for the hell of it. But there is something suspect about a financing plan that was sold to voters on the idea that stadium users would pay and whose guiding principle now is to minimize as much as possible what stadium users pay.

Murphy says he is obliged by state law to maximize the use of tax-exempt bonds. And officials note that this plan will raise more money for ballfields, which was another part of the stadium package that was promoted to voters.

Jim Kelley, a former Locke official who's now a VP at First and Goal, also points out that First and Goal is obliged to pay all cost overruns on the stadium. This will be another, indirect way in which money collected from stadium users will help pay for construction.

The King County Council will vote on the team's tax-cutting request sometime this fall. But there's little chance that council members will raise any objection. After all, the county never had any claim to the stadium taxes anyway—state law tagged all that money for bond payments. So it's no skin off the council members' seats. And besides, the mayor of Mazatlᮠis waiting.